Is Pfizer the Perfect Stock to Own with Kevin Warsh Heading the Fed?

Savvy investors know that change creates opportunities. And a major change is underway at the nation's central bank. Kevin Warsh is now the new Federal Reserve Chair, taking the baton from Jerome Powell. Warsh has publicly called for "regime change" at the Fed, a term that could signal significant policy shifts.

Which stocks should investors consider buying with Warsh in charge? Pfizer (NYSE: PFE) looks like an intriguing candidate. The big drugmaker offers a juicy dividend yield of 6.6%. Its valuation is attractive, with shares trading at only 8.9 times forward earnings. Could Pfizer be the perfect stock to own with Warsh heading the Fed?

Fed Chair Kevin Warsh. Image source: Official White House Photo by Daniel Torok.

Why Pfizer could flourish under a Warsh-led Fed

No one knows for sure what the implications will be with Warsh serving as Fed chair. We're likely entering a period of uncertainty. Volatility will increase for some stocks. However, healthcare stocks such as Pfizer tend to hold up quite well during such times.

Regardless of what happens with monetary policy, patients will continue to need critical medications -- and physicians will continue prescribing them. Pfizer's sales shouldn't be affected much, if at all, by interest rate changes under Warsh's watch.

Investors often find dividend stocks more appealing when markets are turbulent. Pfizer's ultra-high dividend yield, along with its 16 consecutive years of dividend increases and 350 consecutive quarterly dividend payments, could be attractive if Warsh's "regime change" leads to stock market choppiness.

The pharmaceutical company's low valuation could help, too. Rising inflation could force the Fed to raise interest rates. Rising rates usually hit expensive growth stocks the hardest. Value stocks, on the other hand, are more insulated from the effects of increasing interest rates.

Why Pfizer may be less than ideal with Warsh in charge

However, Pfizer won't be a slam-dunk winner with Warsh at the helm of the Federal Reserve. For one thing, if rates indeed move higher, Pfizer's dividend could become less appealing relative to the higher, relatively risk-free yields of U.S. Treasuries. Investors may become more skittish about Pfizer's high dividend payout ratio of 131%.

Pfizer also has $64.7 billion of debt. If the company has to refinance maturing debt at higher rates, its interest expense will increase, putting pressure on margins.

Probably the biggest reason Pfizer may not be the perfect stock to own with Warsh serving as Fed chair, though, is the multiple challenges the company faces. Pfizer's patent cliff stands at the top of the list. Cancer drug Adcetris and autoimmune disease drug Xeljanz lose U.S. patent exclusivity in 2026. Next year is even worse, with patents expiring on Pfizer's two biggest blockbusters, the blood thinner Eliquis and the breast cancer therapy Ibrance. Prostate cancer drug Xtandi also loses patent exclusivity in 2027.

Because of this patent cliff, Pfizer is heavily dependent on its pipeline for future growth. However, there's always a risk that experimental drugs in development will flop in clinical trials or be rejected by regulatory agencies. Meanwhile, competitors are developing products that could threaten Pfizer's existing drugs.

The uncertainty factor

Even if we could sweep all of Pfizer's issues under the rug, there's still one overriding reason why we can't declare the stock as a perfect pick to own with Warsh leading the Fed. That reason has nothing to do with Pfizer; instead, it's about Warsh himself. As mentioned earlier, no one knows exactly what policy changes the new Fed chair will make or how quickly he will be able to implement those changes.

Warsh probably doesn't fully know the answers to these questions yet, either. He can't make monetary policy decisions unilaterally. It's possible (and perhaps probable) that Warsh will encounter significant pushback from other members of the Fed if he tries to make a drastic change. Macroeconomic realities could also prevent him from advancing some of his ideas.

This uncertainty factor makes it impossible to declare any stock as the ideal choice to own with a Warsh-led Fed. But while Pfizer may not be a perfect stock, it should still be attractive to income investors seeking juicy, reliable dividends.

Keith Speights has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.